Supply Chain Management Lecture

8/2/2019 Supply Chain Management Lecture

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SUPPLY CHAIN MANAGEMENT


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What Operations Managers Do?10 OM Strategy

Decisions: Design of Goods & Services

Managing Quality

Process Strategy Location Strategies

Layout Strategies

Human Resources

Supply Chain Management Inventory Management

Scheduling

Maintenance

10 Decision Areas: service & product design

quality management

process & capacity design location

layout design

human resources & job design

supply chain management

inventory, MRP, and J-I-T

intermediate, short-term,

and project scheduling

maintenance


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Supply Chain ManagementManagement of integrated activities that

procure raw materials

transform those materials into intermediategoods and final products

deliver the products through a distribution

system


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SUPPLY CHAIN

SUPPLIERS

Materials,

Parts,

Subassemblies,

And service

Products

and

Services

PRODUCERS

Finished

goods, end

products,

and services

Products

and

Services

DISTRIBUTORS

Package

and

Delivery

Products

and

Services

CUSTOMERS

Total

satisfaction

with quality,

price, delivery

and service

Information

Cash

Inventory Inventory Inventory

Supply Chain is the sequence of organizations their

facilities, functions, and activitiesthat are involved in

producing and delivering a product or service from suppliers

(or their suppliers) to customers (and their customers).


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FACILITIES

FUNCTIONS and ACTIVITIES

warehouses

factories processing centers

distribution centers

retail outlets

offices

forecasting

purchasing

inventory management

information management

quality assurance

scheduling

production

distribution

delivery

customer service


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SUPPLY CHAIN Sometimes referred to asValue Chain, a term

that reflects the concept that value is added asgoods and services progress through the chain.

Comprised of separate business organizations,rather than just a single organization.

Has two (2) components for each organization:

1) a supply component

2) a demand component


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SUPPLY CHAIN

CustomerRetailerDistributorStorageMFGStorage

Supplier

Supplier

Supplier

SUPPLY COMPONENT DEMAND COMPONENT

The supply component starts at the beginning of the chain and ends with the

internal operations of the organization. The demand component of the chain

starts at the point where the organizations output is delivered to its immediatecustomer and ends with the final customer in the chain. The demand chain is

the sales and distribution portion of the value chain

The length of each component depends on where a particular organization is in

the chain:the closer the organization is to the final customer, the shorter its

demand component and the longer its supply component.


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Supplier

Supplier

Supplier

S

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e

MFG Distributor

S

t

o

ra

g

e

S

t

o

ra

g

e

Retailer CUSTOMER

S

t

o

r

a

g

e

SERVICE CUSTOMER

Supplier

Supplier

Distributor CUSTOMERTier 1

SuppliersPRODUCER

Tier 2

Suppliers

MANUFACTURING SUPPLY CHAIN

SERVICE SUPPLY CHAIN

Supply and Demand Components


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The Supply Chain

All organizations, regardless of where they are inthe chain, must deal with supply and demandissues.

The goal of SCM is to link all components of thesupply chain so that market demand is met asefficiently as possible across the entire chain.

This requires matching supply and demand at eachstage of the chain.

Except for the beginning supplier(s) and the finalcustomer(s), the organizations in a supply chainare both customers and suppliers.


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The Supply Chain

Manufacturer

Supplier

Supplier

Supplier

CustomerDistributor

Customer

Customer

Inventory

Inventory

Inventory

Inventory

Market research data

Scheduling information

Engineering & design data

Order flow & cash flow

Ideas & design to satisfy

the end customer

Material flow

Credit flow

The supply chain includes all the interactions betweensuppliers, manufacturers,

distributors, and customers. The chain includes, transportation, scheduling information,cash & credit transfers, as well as ideas, designs, and material transfers.


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Supply Chain Management Includes determining the following:

1) transportation vendors

2) credit & cash transfers

3) suppliers

4) distributors & banks

5) accounts payable & receivable

6) warehousing and inventory levels

7) order fulfillment

8) sharing customer, forecasting & productioninformation


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SUPPLY CHAIN MANAGEMENT (SCM) means managing the flow of goods and services

and information through the supply chain in

order to attain the level of synchronization that

will make it more responsive to customer needs

while lowering costs.

has the goal of linking all components of thesupply chain so that market demand is met as

efficiently as possible across the entire chain.

Keys to effective SCM are:

o Informationo Communication

o Cooperation

o Trust

o Supplier partnering


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Supply Chain Management The idea is to build a chain of suppliers

that focus on both Reducing waste, and

Maximizing value to the ultimate customer

Activities of Supply Chain managers cutacross the disciplines of

Accounting Finance

Marketing

operations


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Need for Supply Chain Management1. Need to improve operations

2. Increasing levels of outsourcing

3. Increasing transportation costs

4. Competitive pressures

5. Increasing globalization

6. Increasing importance of e-commerce

7. Complexity of supply chains8. Need to manage inventories


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Supply Chain ManagementAs firms strive to increase their competitiveness viaSTRATEGIES:

Product customization High quality Differentiation Cost reductions Low-cost Speed-to-market Response

added emphasis was placed on the Supply Chain

The key to effective supply-chain management isto make the suppliers PARTNERSin the firmsstrategy to satisfy an ever-changing marketplace.


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GLOBAL SUPPLY CHAIN ISSUESSupply chains in a global environment must be:

Flexible enough to react to sudden changes inparts availability, distribution or shipping

channels, import duties, and currency ratesAble to use the latest computer and

transmission technologies to manage theshipment of parts in and finished products

outStaffed with local specialists to handle duties,

trade, freight, customer, and political issues


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SUPPLY CHAIN ISSUES

STRATEGIC ISSUES

TACTICAL ISSUES

OPERATING ISSUES

Design of the supply chainPartnering

Inventory policiesPurchasing policiesProduction policiesTransportation policies

Quality policies

Quality ControlProduction Planning & Control


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PERFORMANCE MEASURESPerspective Metrics

RELIABILITY On-time deliveryOrder fulfillment lead timeFill rate

Perfect order fulfillment

FLEXIBILITY Supply chain response timeUpside production flexibility

EXPENSES Supply chain management cost

Warranty cost as a % of revenueValue added per employee

ASSETS/UTILIZATION Total inventory days of supplyCash-to-cash cycle time

Net asset turns


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PURCHASING The supply chain receives so much attention because

Purchasing is the most costly activity in most firms

Illustration:SALES

- VCPurchases (50%)Other VC (24%)

- FCPROFIT

$ 100

(50)(24)(24)

$ 2

=====

$ 103.85

(51.93)(24.92)(24.00)

$ 3.00

=======

$ 100

(49)(24)(24)

$ 3.00

=====

Through a $3.85 of additional sales, profit increased by $1,from $2 to $3. The same increase in margin could havebeen obtained by reducing purchasing costs by $1.


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PURCHASING is critical to supply chain efficiency because it is the

job of purchasing to Select suppliers

Establish mutually beneficial relationships with them

its goal is to develop and implement purchasing plansfor products and services that support operationsstrategies.

among its duties are

Identifying sources of supply Negotiating contracts

Maintaining a database of suppliers

Obtaining goods & services that meet or exceed operationsrequirements in a timely and cost-efficient manner

Managing suppliers


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PURCHASING

Purchasing is the acquisition of goods & services

Objectives of Purchasing are:

1. To help identify the products and services that can beobtained externally

2. To develop, evaluate, and determine the best supplier,price and delivery for those products and services

Purchasing takes place in both manufacturingand service environments

cost & quality ofgoods & services

SOLD

cost & quality ofgoods & services

PURCHASED

EffectivePurchasingStrategy


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Purchasing in

Manufacturing Environments

Purchasing function is supported by

1) Product engineering drawings & specs

2) Quality control documents

3) Testing activities that evaluate the purchased items

PURCHASING AGENT

BUYERS EXPEDITERS

- a person with legal authority toexecute purchasing contracts onbehalf of the firm

- perform all the activities ofthe purchasing departmentEXCEPT contract signing

- assist buyers infollowing up onpurchases to ensureTIMELY DELIVERY


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Purchasing in

Service Environments In many service environments, purchasings

role is DIMINISHED because the primaryproduct is an intangible one (ex. Legal andmedical organizations)

In transportation and restaurants, thepurchasing function is CRITICAL

In wholesale and retail segment of services,purchasing is performed by a BUYER who is apurchaser RESPONSIBLE for the SALE OF andPROFIT ON merchandise that will be resold.


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PURCHASING INTERFACES

LegalAccounting

DataProcessing

Design

Receiving

Suppliers

Operations

Purchasing


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PURCHASING CYCLE Begins with a request from within theorganization to purchase material, equipment,

supplies, or other items from outside theorganization

Ends when the purchasing department is notifiedthat a shipment has been received in satisfactorycondition

Main steps are:

1. Purchasing receives the requisition2. Purchasing selects a supplier

3. Purchasing places the order with a vendor

4. Monitoring orders

5. Receiving orders


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VALUE ANALYSISexamination of the function of

purchased parts and materials in an effort to reduce costand/or improve performance.

MAKE or BUYchoosing between producing acomponent or a service in-house or advantageously

purchasing it form an outside source VENDOR SELECTION - a decision regarding who to

buy materials from, considering numerous factors, suchas inventory and transportation costs, availability of

supply, delivery performance, and quality of suppliers SUPPLIER MANAGEMENTincludes vendor

analysis, supplier audits, supplier certification, supplierrelationships and supplier partnerships

ROLES OF PURCHASING


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ROLES OF PURCHASING

MAKE or BUYRole is to evaluate alternative suppliers and provide

current, accurate, complete data relevant to thebuy alternative.

Wholesale/RetailPURCHASES SALES

Manufacturing, Restaurants, and Assemblers

PURCHASES (components & subassemblies)PRODUCTION

SALES (final products)


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Outsourcing Buying goods or services from outside sources

rather than making or providing them in-house

Reasons:

Ability of outside source to provide materials, parts or

services better, cheaper, or more efficiently

Patents, expertise & knowledge of the supplier

Gives more flexibility to the organization (downsizing)

Risks: Loss of control

Greater dependency on suppliers

Loss of ability to perform in-house


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Deciding Factors in Outsourcing1. Cost to do it in-house versus cost to buy, including start-up costs, versus cost to outsource

2. Stability of demand and possible seasonality

3. Quality available from suppliers compared with a firmsown quality capabilities

4. Desire to maintain close control of operations

5. Idle capacity available within the organization

6. Lead times for each alternative

7. Who has patents, expertise, and so on, if these are factors

8. Stability of technology (if technology is changing, it maybe better to use a supplier)

9. Degree to which the necessary operations are consistentwith, or in conflict with current operations

10. Strategy


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Example No.1 : Make or Buy DecisionChoose which alternative is better. Analyze the following datato determine the total annual cost of making and of buying.

Expected Annual Volume

Variable cost per unitAnnual fixed costs

Make20,000 units

$ 5.00$30,000

Buy20,000 units

$ 6.00-

Solution: Total Annual Cost = Fixed Cost + VC/unit x annual volume

Make : $ 30,000 + ($5 x 20,000) = $130,000Buy : 0 + ($6 x 20,000) = $120,000

Buying is the better alternative because it would save $10,000 a year.


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Example No.2 : Make or Buy DecisionGiven the following data, determine the total annual cost of

making and of buying. Estimated demand is 10,000 units a year.

Variable cost per unitAnnual fixed costTransportation cost per unit

Make

Process A Process Buy__

$ 50 $ 52 $51$ 40,000 $ 36,000

$ 2

SOLUTION:

Variable Cost $500,000 $520,000 $510,000Fixed Cost 40,000 36,000 -

Transportation Cost - - 20,000Total Annual Cost $540,000 $556,000 $530,000

====== ====== ======

Buying is the best alternative with the lowest total annual cost


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OutsourcingREASONS for MAKING

Lower production cost

Unsuitable suppliers

Assure adequate supply (quantity ordelivery)

Utilize surplus labor or facilities andmake a marginal contribution

Obtain desired quality

Remove supplier collusion

Obtain unique item that would entaila prohibitive commitment for asupplier

Maintain organizational talents andprotect personnel from a layoff

Protect proprietary design or quality

Increase or maintain size of company

(management prerogative)

REASONS for BUYING Lower acquisition cost

Preserve supplier commitment

Obtain technical ormanagement ability

Inadequate capacity Reduce inventory costs

Ensure alternative sources

Inadequate managerial ortechnical resources

Reciprocity Item is protected by a patent

or trade secret

Frees management to dealwith its primary business


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ROLES OF PURCHASING

VALUE ANALYSIS

MAKE or BUY DECISION

VENDOR SELECTIONa decision regarding who to buy materials from

considers numerous factors:

inventory and transportation costs availability of supply

delivery performance

quality of suppliers

outstanding operations requires excellent vendors


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3 Stages of Vendor Selection

1. Vendor Evaluation Involves finding potential vendors and

determining the likelihood of their becoming goodsuppliers

Requires development of evaluation criteria, suchas: financial strength

quality

management

research

technical ability

potential for a close

long-term relationship

Weights dependingupon the needs ofthe organization


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2. Vendor Development Ensures integration of the supplier into a firms system and

the appreciation by the vendor of its

Quality requirements

Engineering changes Schedules and delivery

Procurement policies

Payment system

May include everything from training, to engineering &production help, to formats for electronic informationtransfer

Purchasing policies address issues such as percent ofbusiness done with any one supplier or with minoritybusinesses


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3. Negotiations

Negotiation strategies are approaches taken by

purchasing personnel to develop contractualrelationships with suppliers

They are of 3 classic types:

1) Cost-Based Price Model

2) Market-Based Price Model

3) Competitive Bidding


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Negotiations / Determining Prices1) Cost-Based Price Model : requires that the supplier

open its books to the purchaser. The contract price isthen based on time and materials, or on a fixed cost withan escalation clause to accommodate changes in thevendors labor and materials cost.

2) Market-Based Price Model : price is based on apublished price or index. Paperboard and nonferrousmetals prices, for instance, are published in weeklyindustry magazines.

3) Competitive Bidding : is common for large orders ofstandard products and services; is a typical policy inmany firms for the majority of their purchases. Requires to have several potential suppliers of the product (or its

equivalent)

Sends requests for bids, asking vendors to quote a price for aspecified quantity and quality of the items


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Centralized Versus Decentralized

PurchasingCENTRALIZED PURCHASING

Means that purchasing is handled by one special department

Takes advantage of quantity discounts offered on large orders

Obtains better service and closer attention from suppliersEnables companies to assign certain categories of items to specialists

DECENTRALIZED PURCHASINGMeans that individual departments or separate locations handle their

own purchasing requirementsHas the advantage of awareness of differing local needs and beingbetter able to respond to those needs.

Offers quicker response than centralized purchasing

Can save on transportation costs by buying locally, where locations are

widely scattered


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Myths Concerning PurchasingNegotiation is a win-lose confrontation. Purchasing negotiations should not be viewed as a win-

lose game; it can be a win/win game

The main goal is to obtain the lowest possibleprice. It must be realized that contractors and suppliers need

a reasonable profit to survive.

Each negotiation is an isolated transaction. Purchasing must work towards partnering so each

negotiation is a step in developing long-termrelationships and therefore not as an one-off deal.

Ethi i P h i


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Ethics in Purchasing Principles

Loyalty to employer

Justice to those you deal with Faith in your profession

Standards of Purchasing Practice1. Avoid appearance of unethical or uncompromising

practice2. Follow the lawful instructions of your employer

3. Refrain from private activity that might conflict with theinterest of your employer

4. Refrain from soliciting or accepting gifts, favors, orservices from present or potential suppliers

5. Handle confidential or proprietary employer or supplierinformation with due care

6. Practice courtesy and impartiality in all aspects of yourjob

Ethi i P h i


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Ethics in Purchasing

Standards of Purchasing Practice

7. Refrain from reciprocal agreements that constraincompetition

8. Know and obey the letter and spirit of laws governingpurchasing

9. Demonstrate support for small, disadvantaged, andminority-owned businesses

10. Discourage involvement in employer-sponsoredprograms of non-business, personal packages

11. Enhance the profession by maintaining currentknowledge and the highest ethical standards

12. Conduct international purchasing in accordance with thelaws, customs, and practices of foreign countries, butconsistent with the laws of the your country, your

organizations policies, and these guidelines


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SUPPLIER MANAGEMENT

Vendor Analysis

Supplier Audits

Supplier Certification

Supplier Relationships

Supplier Partnerships

Strategic Partnerships


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SUPPLIER MANAGEMENTVendor Analysis Evaluating the sources of supply in terms ofprice,

quality,the suppliers reputation, past experience withthe supplierand after-sales service

Other factors that can be used in evaluation are flexibility(in handling changes in schedules, design and quantity),location, leadtimes & on-time delivery,and otheraccounts

Supplier AuditsAre a means of keeping current on suppliers production

capabilities, quality and delivery problems andresolutions, and performance on other criteria

Are also an important first step in supplier certification

programs

SUPPLIER MANAGEMENT


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SUPPLIER MANAGEMENTSupplier Certification Is a detailed examination of the policies and capabilities of

a supplier

Verifies that a supplier meets or exceeds the requirementsof the buyer

Is generally important in supplier relationships, but is

particularly important in seeking to establish long-termrelationships with suppliers

Supplier Relationships Type of relationship depends on length of a contract

Short-term contracts involve competitive bidding Medium-term contracts often involve ongoing relationships

Long-term contracts often evolve into partnerships

Keeping good relations with suppliers is increasinglyrecognized as an important factor in maintaining a

competitive advantage.

SUPPLIER MANAGEMENT


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SUPPLIER MANAGEMENTSupplier Relationships Supplier Partnerships

More and more business organizations are seeking to establishpartnerships with other organizations in the supply chain

This impliesa) Fewer suppliers

b) Longer-term relationships

c) Sharing of information (forecasts, sales data, problem alerts)d) Cooperation in planning

Benefits area) Higher quality

b) Increased delivery speed and reliability

c) Lower inventoriesd) Lower costs

e) Higher profits

f) Improved operations

Strategic Partnerships are those that convey strategic benefits toone or both partners who have the potential for helping them grow theirown businesses.


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LOGISTICSThe movement of materials and information withina facility and to incoming and outgoing shipmentsof goods and materials

Movement within a facility movement of materialsmust be coordinated to arrive at the appropriatedestination at appropriate times

Traffic Management overseeing the shipment ofincoming and outgoing goods

Evaluating shipping alternatives need to make a choicebetween rapid (but more expensive) shippingalternatives and slower (but less expensive) alternatives


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MATERIALS MANAGEMENTPurchasing may be combined with various warehousing andinventory activities to form a materials management system

Purpose is to obtain efficiency of operations through theintegration of all material acquisition, movement, and storageactivities

Emphasis is placed on MM when the transportation andinventory costs are substantial on both the input and outputsides of the production process

Potential for competitive advantageis found via both reducedcostsand improved customer service

Recognizing that distribution of goods to and from the firmsfacilities can represent as much as 25% of the cost of theproducts, there is a need to evaluate their means ofdistribution (trucking, railroads, airfreight, waterways or

pipelines)


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SUPPLY CHAIN STRATEGIES

1. Many Suppliers

2. Few Suppliers

3. Vertical Integration

4. Keiretsu Networks

5. Virtual Companies

SUPPLY CHAIN STRATEGY


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SUPPLY CHAIN STRATEGY1. Many Suppliers

Traditional American approach ofnegotiating with manysuppliersand playing one supplier against another

The supplier responds to the demands and specifications of

a request for quotation (RFQ) with the order usuallygoing to the low bidder

Suppliers aggressively competing with one another

Places the burden of meeting the buyers demands on the

supplier Holds the supplier responsible for maintaining the

necessary technology, expertise, and forecasting abilities,as well as cost, quality, and delivery competence

Not long-term: partnering relationships are NOT the goal



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SUPPLY CHAIN STRATEGY2. Few Suppliers

Implies that rather than looking for short-termattributes, such as low cost, a buyer is better offforming a long-term relationship with a few dedicatedsuppliers.

Using few suppliersa) Are more likely to understand the broad objectives of the

procuring firm and the end customer

b) Can create value by allowing customers to have economies of scale ) that yield both lower transaction costs

learning curve ) and lower production costs

Few suppliers (with large commitment to buyer) mayalso be more than willing to

a) Participate in JIT systems

b) Provide innovations & technological expertise



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SUPPLY CHAIN STRATEGY2. Few Suppliers

Most important factor : TRUST between suppliers and buying companies alignment of cultures ) that foster both formal

commitment of resources ) & informal contact toward advancing the relationship

Strengthening the partnership

Buyers Results: Incorporate suppliers in the supply system ) contracts that extend thru Choose suppliers even before parts are designed ) the products life cycle

Place added emphasis on quality & reliability ) more efficient

) reduced prices over time

Downsides Cost of changing parts is huge (so both buyer and supplier run the risk of

being captives of the other)

Risk of poor supplier performance

Concern about trade secrets and suppliers that make other alliances orventure out on their own (ex. US Schwinn Bicycle Co. taught Taiwans GiantMfg. Co.)



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SUPPLY CHAIN STRATEGY3. Vertical Integration

Developing the ability to produce goods or services previously

purchased or actually buying a supplier or distributor. Can take the form of FORWARD or BACKWARD integration

Vertical Integration

Backward IntegrationRaw Material (suppliers)

Current Transformation Automobiles Integrated Flour

Circuits MillingForward Integration

Finished goods (customers)

Examples of Vertical Integration

Iron ore

Steel

Distributionsystem

Dealers

Silicone

Circuit Boards

ComputersWatches

Calculators

Farming

Baked

goods



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SUPPLY CHAIN STRATEGY3. Vertical Integration

Can offer opportunities or advantages in:

Cost reduction ) work best when the organization

Quality adherence ) has a large market share, or the

Timely delivery ) management talent to operate Scheduling flexibility ) an acquired vendor successfully

Dangerous for firms in industries undergoingtechnological change if management cannot

keep abreast of those changes, or

invest the financial resources necessary for the nextwave of technology



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SUPPLY CHAIN STRATEGY4. Keiretsu Networks

Many large Japanese manufacturers have found a middleground between purchasing from few suppliersto verticalintegration

These manufacturers are often the financial supporters of

suppliers through ownershipor loans The supplier then becomes part of a company coalition, known as the

keiretsu

Members of the keiretsu

assured of long-term relationships, and therefore expected to functionas partners

provide technical expertise and stable quality production to themanufacturer

can also have suppliers down the chain, making second- or even third-tier suppliers part of the coalition



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SUPPLY CHAIN STRATEGY5. Virtual Companies

Because vertical integration locks in an organization intobusinesses that it may not understand or be able tomanage, another strategy is to find good flexible suppliers

Takes away complications brought about by specialization andchanging technology

Addresses issues of being too bureaucratic having a division

Develops virtual companies that use suppliers on anas-needed basis

Doing payroll; hiring personnel

Designing products Manufacturing components

Conducting tests

Distributing products

Providing consulting services



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companies that rely on a variety of supplierrelationships to provide services on demand

Also known as hollow corporationsor networkcompanies

Have fluid, moving organizational boundaries thatallow them to create a unique enterprise to meetchanging market demands

Relationships may be ST or LT and may include: true partners } whatever formal relationship,

collaborators } the result can be

able suppliers } exceptionally

subcontractors } LEAN PERFORMANCE



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Advantages include

specialized management expertise

low capital investment

flexibility

speed

Traditional Example : APPAREL BUSINESS Designer of clothes seldom manufacture their designs

They rather license the manufacture

rent a loft

lease sewing machines

contract labor

Result:

low overhead

flexibility

speed-to-market



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Contemporary Example : SEMICONDUCTORINDUSTRY exemplified by Visioneer (in Palo Alto, CA)

subcontracts almost everything

software written by several partners

hardware manufactured by a siliconesubcontractor

PCBs made in Singapore

Plastic cases made in Boston where units aretested and packed for shipment

In virtual companies, the Purchasing function isdemanding and dynamic

OPTIMIZING the SUPPLY CHAIN


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Postponement

Channel Assembly Drop Shipping and Special Packaging

Blanket Orders

Stockless Purchasing Standardization

Electronic Ordering and Funds Transfers

Internet Purchasing

RMsources

Suppliers Prod Whse Distributors Customers

SUPPLIER SELLER DISTRIBUTION CONSUMER

VALUE

CREATION



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OPTIMIZING the SUPPLY CHAIN1. POSTPONEMENT : withholding/delaying any modifications

or customization to the product as long as possible in theproduction process Example: Dell Computers modified its printer by moving out the

power supply into a power cord (generic printers) Manufacture and centralized inventories of generic printers for shipment as

demand change

Unique power system and documentation at the final distribution point

2. CHANNEL ASSEMBLY : a variation of postponement;postpones final assembly of a product so the distribution channelcan assemble it; sends individual components & modules, ratherthan FG, to the distributor, who then assembles, tests, and ships. Treats distributors more as manufacturing partners than as

distributors

Technique is successful in industries where products undergo rapidchange such as PCs

FG inventory is reduced, market response is better, with lowerinvestment (nice combination in business)

Examples: IBM, HP, Compaq



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OPTIMIZING the SUPPLY CHAIN3. DROP SHIPPING & SPECIAL PACKAGING :

means the supplier will ship directly to the end customer, rather

than to the seller saving both time and reshipping costs. Other cost-saving measures include the use of special packaging, bar coding &labeling; beneficial to wholesalers & retailers by reducing shrinkage(lost, damaged or stolen merchandise) and handling costs.

Dell Computers core competence is not in stocking peripherals,but in assembling PCs.

4. BLANKET ORDERS :a long-term purchasecommitment to a supplier for items that are to bedelivered against short-term releases to ship Are unfilled orders with a vendor; not an authorization to ship

anything until the receipt of an agreed-upon document, perhaps ashipping requisition or shipment release

5. STOCKLESS PURCHASING :means that asupplier delivers materials directly to the purchasersusing department rather than to a central stockroom.



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OPTIMIZING the SUPPLY CHAIN6. STANDARDIZATION : reducing the number of

variations in materials and components as aid to costreduction

Rather than obtaining a variety of similar componentswith labeling, coloring, packaging or slightly differentengineering specifications, the purchasing agent

should try to have the components standardized

7. ELECTRONIC ORDERING & FUNDSTRANSFER :reduces paper transactions, consisting of

purchase order, purchase release, a receiving document,authorization to pay an invoice and finally the issuance ofa check

Speeds up the traditionally long procurement cycle


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7. ELECTRONIC ORDERING & FUNDSTRANSFER :

Electronic Data Interchange a standardized

data transmittal format for computerizedcommunications between organizations (orderdate, due date, quantity, part #, P.O. #, address,and so forth)

Advanced Shipping Notice (ASN) a shippingnotice delivered directly from vendor topurchaser



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8. INTERNET PURCHASING also known as e-procurement

Order releases communicated over the Internet or approvedvendor catalogues available on the Internet for use by employeesof the purchasing firm

Takes 2 forms:a) First, Internet Purchasing may just imply that the Internet is used to

communicate ORDER RELEASES to the suppliers (items for which ablanket P.O. exists)

b) Second, for non-standard items, for which there is no blanket P.O.,CATALOGUES and ORDERING PROCEDURES enhance thecommunication features of the Internet

Lends itself to comparison shopping, rapid ordering, and

reduction of inventory Liked by suppliers because on-line selling means they are getting

closer to their customers

May be a part of an integrated ERP system (order release, notonly tells the supplier to ship, but also updates the appropriate

portions of the ERP system)

CREATING AN EFFECTIVE


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CREATING AN EFFECTIVESUPPLY CHAIN

1. Develop strategic objectives and tactics. These will guide the

process.2. Integrate and coordinate activities in the internal portion of

the chain. This requires (1) overcoming barriers caused byfunctional thinking that lead to attempts to optimize a subset

of a system rather than the system as a whole, and (2)transferring data and coordinating activities.

3. Coordinate activities with suppliers and with customers. Thisinvolves addressing supply and demand issues.

4. Coordinate planning and execution across the supply chain.This requires a system for transferring data across the supplychain and allowing access to data to those engage inoperations to which it will be useful.

5. Consider the possibilities of forming strategic partnerships.


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CHALLENGES

Barriers to Integration of Separate OrganizationsGetting CEOs, Board of Directors, Managers, andEmployees Onboard

Dealing with Trade-offs

1. Lot size-inventory trade-off2. Inventory-transportation cost trade-off

3. Lead time-transportation cost trade-off

4. Product variety-inventory trade-off

5. Cost-customer service trade-offSmall Businesses

Variability and Uncertainty

Long Lead Times

PERFORMANCE DRIVERS


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PERFORMANCE DRIVERS1. Cost

2. Quality3. Flexibility

Refers to the ability to adjust to changes in orderquantitiesbut also in product or service

requirements4. Velocity

Inventory velocity the rate at which inventory(material) goes through the supply chain

Information velocity the rate at whichinformation (two-way flow) is communicated in asupply chain

5. Customer Service

Supply Chain Management Lecture

Documents

Transcript of Supply Chain Management Lecture